How a Broker Holds Your Money
Segregated accounts, regulatory capital and compensation schemes are three different protections that get described in one sentence. What each covers, what it does not, and how to check which apply to you.
Three protections, often confused
Broker websites tend to compress client-money protection into a single reassuring line. It is worth separating, because the three mechanisms behind it cover different failures and only some of them apply to any given account.
Segregation keeps your money in bank accounts separate from the broker's operating funds. Regulatory capital is the firm's own money, held to absorb losses before clients are touched. A compensation scheme pays out, up to a cap, if the firm fails anyway. The first two reduce the chance of loss; only the third replaces money that is already gone.
Segregation: what it does and does not do
Segregated funds cannot legally be used to run the business, and in an insolvency they are identifiable as client property rather than becoming part of the estate. That is meaningful protection against ordinary business failure.
It is not protection against fraud, and it is not self-executing. What makes segregation real is the surrounding machinery: daily reconciliation, an external auditor, a named bank of decent standing, and a regulator that inspects and penalises. The same sentence — "client funds are held in segregated accounts" — appears on sites with all of that behind it and on sites with none of it, which is why the claim itself carries little information.
Regulatory capital: the number behind the badge
Every licence sets a minimum own-funds requirement, and the gap between regimes is enormous: seven figures with audited accounts and prompt breach reporting at one end, a small fraction of that with no published accounts at the other.
When two brokers show different regulatory flags, this requirement is the most informative difference between them. It tells you how much of a shock the firm can absorb before client money is at risk, and how much scrutiny it accepted to operate.
Compensation schemes: the backstop with a ceiling
Some jurisdictions run investor compensation schemes that pay clients if a licensed firm fails — up to a fixed cap per person, which is usually far below the balance of an active trading account.
Two details decide whether it applies to you. Which entity holds your account: large brokers operate several, and the one that onboarded you may not be the regulated one whose scheme you assumed. And whether your residency is covered: schemes commonly protect clients of the local entity, not clients routed offshore. Both facts are in the client agreement, and neither is in the marketing.
How to check, in ten minutes
Find the legal entity name at the bottom of the site, then look it up in the regulator's public register rather than trusting the badge. Confirm the licence covers the activity you are doing and that the status is current. Read the client agreement for the entity name — if it differs from the one on the register, that difference is the whole story. Then check whether a compensation scheme is named, what its cap is, and whether it covers residents of your country.
What none of this covers
No protection here compensates for trading losses, for a stop filled through a weekend gap, or for a position closed at a stop-out level. Client-money protection is about the broker failing, not about the market moving. Keeping only working capital at a broker and withdrawing the rest is the one measure that reduces every category of risk on this page at once.
Capital at risk. Trading forex and CFDs carries a high level of risk and may not be suitable for all investors — most retail CFD accounts lose money. Never trade with money you cannot afford to lose. Read the full risk disclosure